Central Bank should lend to ‘illiquid but solvent’ banks under certain conditions. Several authors have argued that this view … classical models of bank runs. We build a model of banks’ liquidity crises that possesses a unique Bayesian equilibrium. In this …

In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a … large sample of Central and Eastern European banks which allows us to explore the impact of interbank lending when exposures … are long-term and interbank borrowers are small banks. The results of the empirical analysis generally confirm the …

For an international sample of banks, we construct measures of a bank’s absolute size and its systemic size defined as … size relative to the national economy. We then examine how a bank’s risk and return, its activity mix and funding strategy …, and the extent to which it faces market discipline depend on both size measures. While absolute size presents banks with a …

We address the following questions concerning bank capital: why are banks so highly levered, what are the consequences … promote ex post financial stability but also create perverse incentives for banks to engage in correlated asset choices ex … Treasuries, accrues to the bank’s shareholders as long as the bank is solvent, and accrues to the regulators (rather than the …

We consider a model in which banks face two moral hazard problems: 1) asset substitution by shareholders, which can … occur when banks make socially-inefficient, risky loans; and 2) managerial under-provision of effort in loan monitoring. The … creditors. Anticipation of this action generates an equilibrium featuring systemic risk, in which all banks choose inefficiently …

This paper uses a large panel of financial flow data from banks to assess how institutions affect international lending …